Buying In A Confusingly Awful Market

04/01/08 01:26:09 PM

by Koos van der Merwe

"When in doubt, stay out." So goes the saying, and with markets as confusing as they are now, this is probably the best strategy to take.

Security: AAPL
Position: Hold

But how can you make money in this market? Long buyers are hurt by the uncertainty of new harmful disclosures almost weekly, and short sellers are hurt by the optimism that the market demonstrates on days when there is no news. Once again, there's another old saying: "No news is good news."

Below is one of the very profitable recent buys -- Apple (AAPL), purchased on February 29 at $126.20 in a falling market. When I purchased the stock, it was a typical "coulda, shoulda, woulda" syndrome, because the price continued falling, closing at $121.73 on March 1 and falling to a low of $119.37 by March 10. This gave a drawdown of 5.41%, far greater than I normally like, but the program did not give a sell signal, so I decided to stay with it. From that date the price started rising, and continued to rise, reaching a high of $145.74 by March 26. Since then the price has been moving sideways.

The strategy used has not given a sell signal, nor stopped me out. As you can see on Figure 1, the strategy that originally gave me a buy signal was the FishMACDGighStochTurtle TRII strategy, which was confirmed on March 18 by the B Trending (Stocks) and Jak9b strategies. (Multiply 8 * 26 + 2 and you have the number of test strategies I developed before I settled on 9b as my ultimate.)

FIGURE 1: AAPL, DAILY. Here are the buy and sell signals given for Apple.

Graphic provided by: Omnitrader.

What is also interesting is that a very definite cup & handle pattern has developed, with the handle of the cup filling the gap of January 23. This is suggesting that should the price break above the $146.03 level, we could see a rise to a target of $172.91, as shown on the chart.

Finally, do note the previous buy and short signals. Although both signals never gave a signal at the low or the high of the price movement, they were nevertheless very profitable signals.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.